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Citi sues to recoup Revlon loan funds; Amex to buy Kabbage

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Give it back

Citigroup sued the hedge fund Brigade Capital Management for the return of its share of nearly $900 million that the bank mistakenly paid to Revlon lenders last week. “Brigade and other lenders have taken the position that they aren’t obligated to return the money,” the Wall Street Journal reported, but Citi said the firm “has unlawfully attempted to capitalize on the mistaken payment, ” the bank said in its complaint, which was filed in New York federal court Monday.

“Any other outcome would threaten the stability of the banking system and the relationships between administrative agents and lenders, as it would reward bad actors that try to capitalize on operational mistakes,” the bank argued. “Citi is in charge of collecting payments and communicating with the syndicate of lenders that provided the 2016 loan to Revlon.”

Citi “moved to recover the funds within hours of the transfers, which on average were more than 100 times the value that each lender was due to receive,” the Financial Times said. “But it has so far failed to recoup the full amount. Citigroup was meant to have sent Brigade only $1.5 million in accrued interest on the term loan the hedge fund held, according to the lawsuit. Instead, the bank wired $176 million of its own funds to Brigade.”

The bank said it is in contact with the OCC and Fed about the situation, Bloomberg reported.

Wall Street Journal

Opportunity knocking

“There has been more discussion of community development financial institutions (CDFIs) and economic opportunity for people of color in the last four months than the previous 40 years,” the Journal reports. “Google joined with the Opportunity Finance Network, a membership group for CDFIs, to launch a $125 million fund for the industry. Goldman, Bank of America, Morgan Stanley, Citigroup and Wells Fargo, all of which had existing relationships with CDFIs, have in recent months announced investments—in the form of grants or capital to fund PPP and other loans—ranging from $5 million to $750 million.”

AML progress

Partnerships between governments and the financial sector to fight financial crime “have produced some promising early results. Compliance officers say it could lead to a shift away from the current ‘tick-box’ approach to anti-money-laundering regulation. Today, nearly 20 countries have created information-sharing partnerships, according to the Future of Financial Intelligence Sharing program.”

Profit priorities

Swamped with demand, some mortgage lenders are favoring purchase loans over refinances, “often offering lower rates to grab new business.” Rates on purchase loans are currently averaging more than 20 basis points lower than on refis.

“Some mortgage bankers say they prefer to make purchase-mortgage loans over refis. Their per-loan compensation is typically a bit higher for purchases. Financing home purchases also can often lead to more business through referrals and refis down the road. Refinancings, on the other hand, come and go with rates.”

Financial Times

Salad days

American Express said it will buy the online lending platform Kabbage, “as the card issuer aims to expand its product offering for small businesses. The announcement comes just months after Kabbage announced an abrupt strategic U-turn. In April, the company stopped making small business loans, previously its core business. After Kabbage stopped lending, it focused on using its online platform to facilitate the government’s Paycheck Protection Program (PPP) for small businesses.” The price of the deal was not disclosed.

“As part of the transaction, Kabbage and Amex will establish and capitalize an entity that will service both the PPP loans and Kabbage’s securitized small business loans.”

Back where it began

Former U.K. Chancellor Sajid Javid is returning to JPMorgan Chase, where he started his career, this time as a member of the bank’s European advisory council, which will offer advice on the bank’s operations in the region after Brexit. “Javid joined JPMorgan in New York after leaving university, later moving to Deutsche Bank before becoming a Conservative MP in 2010.” He left his cabinet post six months ago.

Elsewhere

Good news, bad news

“U.S. home builder confidence rose for a third straight month in August to match its highest level ever as record-low interest rates spur buyer traffic,” Reuters reported. “At the same time, however, a growing number of home owners are falling behind on their mortgages with tens of millions still out of work and growing signs that the labor market recovery is softening.”

“The National Association of Home Builders/Wells Fargo Housing Market Index rose six points to 78, matching a series record set in 1998. But even as home builder confidence surges, more homeowners affected by the crisis have stopped paying their mortgages. The delinquency rate for residential mortgages rose to 8.2% in the second quarter, up nearly four percentage points from the first quarter and the largest quarterly increase on record, according to the Mortgage Bankers Association. Loans backed by the Federal Housing Administration saw their delinquency rate jump to almost 16%, the highest since the survey began more than four decades ago.”

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